Guernsey’s love affair with the protected cell company

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CAPTIVE GUERNSEY REPORT 2014
GUERNSEY | ROBUS RISK
Oh no, not another PCC article, I
hear you cry!
Well I am afraid so, and with
good reason. The statistics for
last year, i.e. calendar year
2013, tell us the continued strength of PCC
business in Guernsey (see diagram below).
So PCCs and PCC cells were 77% of all new
business in Guernsey last year. Here at Robus
we followed this trend and in fact, by our reckoning
had 28 cells licensed in 2013, making up
almost half the 63 licensed in Guernsey in that
period.
So PCCs are in our blood, and I speak both as
a Guernseyman, and a Robusman.
Why the ongoing popularity?
PCCs rather than standalones – there’s no
reason not to
When setting up a new vehicle, our view is that
you may as well go down the PCC route, just
because – why do anything else?
The costs of a PCC with no cells are exactly the
same as a standalone vehicle because at its basic
level a PCC is a standalone vehicle. This covers
capital, regulatory fees, independent NED fees,
audit fees and insurance management fees.
A business can write business through the
core exactly as if it was not a PCC entity. So
given that a PCC could offer future fl exibility,
the fi rst question I often ask my clients is
‘why not’? Some PCCs
are formed, therefore,
without initially utilising
cells or utilising just
one cell.
Some clients, of
course, still prefer a
standalone; they just
cannot see when they
would want or need to
use a cell structure and/
or they are concerned at
confusing counterparties
by having to explain
what a PCC is and how they are utilising it.
These are perfectly valid reasons not to have a
PCC structure. Of course, a standalone can be
converted to a PCC at some point in the future
too if the need arises. But in general our recommendation
is to consider forming as a PCC
initially ‘just in case’.
PCC cells – still a great concept
Swift to form and swift to close
PCC cells are normally faster to set up than
standalone vehicles, because the information
required to the Guernsey FSC and consequently
their review time is reduced. The
corporate structure of the PCC, the board and
the auditors, these things are already known
and accepted, so a cell application can focus
purely on the business plan and ownership of
the cell itself.
There is speed of exit too. For a standalone
the insurer needs to have liabilities removed
and then must go into a liquidation process.
For a cell there is no liquidation; once the cell
has been emptied of assets and liabilities it can
be simply closed through a board resolution.
Value for money
The costs associated with cells are reduced
compared to standalone vehicles; regulatory
fees are materially reduced and other costs are
generally shared in a PCC and again should be
lower. Insurance management fees for a single
cell should be lower than for a standalone
because the manager generally has less work
to do as there is only one corporate structure
for multiple clients.
Chris Le Conte of Robus Risk discusses the continued success of protected cell companies (PCCs) in Guernsey
Written by
Chris Le Conte
Chris Le Conte qualifi ed as an accountant with
Deloitte in Guernsey before moving into captive
insurance in 1994 with Aon. In 2011 he set up the
Robus Group, an independent insurance manager
and consulting group with operations in Guernsey
and Gibraltar. The Robus Group are the current
holders of the 2013 UK Captive Service Awards for
Independent Captive Manager of the Year.
GUERNSEY’S LOVE
AFFAIR WITH
THE PCC
Stand alones
PCCs
PCC cells
ICCs
Incorporated cells
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CAPTIVE GUERNSEY REPORT 2014
ROBUS RISK | GUERNSEY
Minimum barrier to entry
We rarely see it used but as the minimum
capital of £100,000 required for a Guernsey
insurer applies to the PCC as a whole, the capital
of a cell can be less than that.
Management time
For a client, management time expended
on their insurance/reinsurance vehicle can
be brought down, specifically around board
meetings, because the client will not have representation
on the PCC board. Periodic strategy
or planning meetings can of course be held
but timing is entirely within the client’s remit
as opposed to the relative formality and rigour
of a full board process.
Flexible
PCC structures offer flexibility; an insurance
licensed PCC can also, with regulatory
approval, form cells not undertaking insurance
business, for example offering guaranties
or indemnities or participating in ISDA
swaps or similar structures.
These structures can also be facilitated in
standalone vehicles but we are of the view
that the regulatory oversight of PCCs is a
good thing and gives comfort to third parties
that business is occurring in a well-regulated
environment.
PCCs rather than ICCs – almost always
Guernsey, of course, provides an incorporated
cell company (ICC) framework as well as a PCC
framework.
Incorporated cells (ICs) are actually very
different to PCC cells, given that they are legal
entities in their own right. One advantage this
brings is that ICs can contract with each other
while PCC cells within the same PCC cannot.
Historically ICs had the potential advantage
of being ‘floated off’ from their umbrella ICC
to become true standalones. However, under
revised Guernsey legislation this is now available
to PCC cells also.
Against this, costs of ICs are somewhat
higher than PCC cells and administration is
certainly more burdensome.
So, all in all here at Robus we most often
favour a PCC structure over an ICC, although
there are specific occasions when an ICC format
may be of value.
The rise of ILS
As has been well documented by Guernsey
Finance and others, the insurance-linked
securities (ILS) market has driven a lot of the
growth of PCCs and ICCs in Guernsey, particularly
in 2013. Certainly here at Robus our
Hexagon PCC Group, led by one of the world’s
leading PCC experts, Justin Wallen, has been
very active in that sphere and we already see
that continuing in 2014.
It’s not all just ILS though
ILS may have led the way in terms of number
of transactions, but that is not to say there isn’t
other business activity also; we have seen a
variety of cells formed in 2013.
PCCs and/or cells are ideal for MGAs and
brokers looking to participate in capacity provision
and we expect further activity in that
sector in 2014.
Conclusion
Looking deeper into the Guernsey statistics
as set out on the Guernsey FSC website, tells
us that PCCs and ICCs are driving all insurance
growth in Guernsey, certainly in terms
of number of licensed entities. In the case
of standalones, while 10 new licences were
issued in 2013, 10 were also surrendered, so
that market continues to appear quite flat.
I have no doubt that Guernsey’s love affair
with PCCs and cells will continue in 2014, and
our view at Robus is that that is quite right. While
they are by no means new, having been around
now for almost 17 years, PCCs remain a fantastic
tool that will stand the test of time and continue
to be valued by those interested in Guernsey
insurance and reinsurance structures.